Why Do You Want Title Insurance?

If you have ever bought a house via a realtor and with a mortgage, then you will have seen a title commitment. This is a “invoice of health” from a title insurance firm, alerting you to who owns the property you might be purchasing and to any liens, mortgages, or encumbrances on the property. It is essential that you get a title commitment and title insurance.

A typical sales agreement requires the seller to give the customer a “warranty” deed. The word “warranty” implies that the seller is guaranteeing to the buyer that he/she owns the property, that it consists of the legal description set forth within the title commitment, and that the liens, encumbrances, and mortgages may have been discharged on the time of closing so that the property is transferred without any baggage. As an aside, if the sales agreement was signed by one particular person but the title commitment indicates that there are two owners of the property, each of the owners must sign the closing paperwork for the sale to be consummated. If the property is owned by an estate (because the owner died), the personal consultant might must get a court order to acquire the creatority to sign a deed on behalf of the estate. If the property is owned by a corporation, then a majority of the shareholders must consent to the sale via a corporate decision for the sale to be effective.

When there isn’t any title insurance guaranteeing the legal description, the legal owner, and the absence of encumbrances at the time of closing, the client normally gets a mere “quit claim” deed. This means “buyer beware”-in spades. The client could later have a claim for fraud in opposition to the seller, but that means a lawsuit and potential problems with amassing on a judgment. If, alternatively, you’ve gotten title insurance and discover that the legal description was mistaken, the seller did not have the appropriate to sell the property, and/or liens or other encumbrances weren’t disclosed or not discharged, you possibly can file an insurance claim and hopefully be paid virtually immediately.

While you purchase property, particularly if it has been foreclosed or you might be shopping for it as a “quick sale,” make sure to get a title insurance commitment. The commitment provides direction for what must be finished to remove liens, encumbrances, and mortgages from the general public record. The commitment, nevertheless, can “expire.” There’s a date, usually at the top, that indicates the final date that title to the property was checked. You’ll be able to request that the title commitment be “updated” to the date of the sale. If it just isn’t and you settle for a commitment with a stale date, then you definitely might not be able to complain if the IRS filed a lien in opposition to the property the day earlier than the sale, and the title firm didn’t discover it. Because title insurance companies are related lately to the Register of Deeds office, it is just not burdensome for them to do a last minute check.

As a final difficulty, when property has been foreclosed, there’s a “redemption interval” (generally six months) after the sheriff’s sale during which the owner can “redeem” the property. To redeem, the owner should go to the Register of Deeds office with a cashier’s check for the quantity paid on the sheriff’s sale plus the curiosity that has accrued for the reason that sale. If the owner manages to sell the property throughout this redemption interval, that may produce sufficient money to redeem the property. The problem is that if the property is redeemed, then the entire mortgages or liens that had been recorded after the foreclosed mortgage was recorded are reinstated and remain connected to the property.

For instance, assume the following:

On January 5, 2008, Bank of America recorded a $one hundredK mortgage loan to the owner.

On September 9, 2009, Quicken Loans recorded a $50K secured equity line.

On March 2, 2010, the IRS filed a lien for $a hundredK.

If (a) Bank of America foreclosed on the $100K mortgage loan; (b) Bank of America “bid” $a hundredK at the sheriff’s sale (after which offered to cancel the mortgage in trade for the property); and (c) the owner did not redeem the property-then the following Quicken Loans’ loan and the IRS lien will be extinguished. Bank of America will own the property outright.

If, alternatively, a) Bank of America foreclosed on the $one hundredK mortgage loan; (b) Bank of America “bid” $100K on the sheriff’s sale (and then offered to cancel the mortgage in alternate for the property); and (c) the owner did redeem the property -then the subsequent Quicken Loans’ loan and the IRS lien remain an encumbrance towards the property. If somebody purchased the property during the redemption interval, even in a brief sale, that particular person would have paid something to the owner to buy the property however would have truly purchased property still subject to the $50K secured equity line and the $a hundredK IRS lien. Only the complete running of the redemption period extinguishes subsequent liens, mortgages, and encumbrances unless those subsequent lenders or lien holders agree to launch their interest in the property. If you’re nonetheless dealing with the owner of foreclosed property, the property is undoubtedly nonetheless within the redemption interval-and due to this fact you MUST BEWARE!!

It’s crucial that purchasers of real estate receive title insurance and the wisdom of a good title insurance company. As they say, “If it’s too good to be true, then it probably is just not true.” While in most real estate deals the seller pays for the title insurance, there’s nothing to forestall a purchaser from acquiring title insurance himself. On the minimal, a buyer ought to receive a title search of the property (present to the date of sale) earlier than any purchase.

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